Editorial: Competition for auto insurance

Wednesday

Aug 29, 2007 at 12:01 AMAug 29, 2007 at 2:45 AM

Massachusetts residents can't escape the geckos, cavemen and others pitching discount auto insurance on every TV channel, nor can residents patronize them. Geico (with its ever-present talking gecko) and other national insurers won't sell policies in Massachusetts because they cannot compete on price - a policy we pay for in higher rates.

The MetroWest Daily News

Massachusetts residents can't escape the geckos, cavemen and others pitching discount auto insurance on every TV channel, nor can residents patronize them. Geico (with its ever-present talking gecko) and other national insurers won't sell policies in Massachusetts because they cannot compete on price - a policy we pay for in higher rates.

That would change under the ``managed competition'' regulations proposed by Insurance Commissioner Nonnie Burnes. Warren Buffett, whose Berkshire Hathaway firm owns Geico, has said the new regime may well lure the gecko to the Bay State. Nearly half the companies which sold auto insurance in Massachusetts in 1990 have pulled out of the state. Bringing some back, and giving them the flexibility to compete on price, should mean better deals for drivers.

But the competition Burnes has in mind will still restrict insurers more than in any other state. Under the proposal made official this week, they would not be able to consider such factors as education, marital status or credit rating in setting premiums.

Of particular concern for MetroWest drivers is whether insurers will be able to offer lower rates to motorists in suburban and rural areas. Current rules divide the state into territories, with lower premiums in areas where accident and auto theft rates are lower. Burnes' office says those territories won't change - at least in the first year. But her letter promises lower rates for good drivers ``no matter where such drivers garage their vehicles.''

Even with the territories, rural and suburban drivers subsidize the premiums of urban drivers, a subsidy Burnes has promised will continue. We'd like to see a commitment from her that future regulations won't make that inequity even worse.

Auto insurance reform has its opponents, most of them with a vested interest in keeping insurers out of the state - and most of them with clout in the Legislature. They include the handful of Bay State companies that dominate the auto insurance market, notably Commerce and Arbella, who have learned to thrive under the state's regulated system and have been well connected to the political establishment for decades. There are the independent insurance agents that fear being cut out of the business by companies selling policies over the Internet. And there are legislators representing urban districts whose auto insurance is subsidized by higher premiums charged to suburban drivers. Their talk about equity is thinly-disguised self interest: They want other legislators' constituents to pay more for car insurance so that their constituents can continue paying less.

Proponents of auto insurance reform, including this page, hope Massachusetts can replicate the success of New Jersey, which had a heavy-handed regulatory structure until major insurers threatened to walk out. Reform there has attracted new companies and consumers are benefiting from competition. While rates have gone down in both New Jersey and Massachusetts - and the rest of the country, thanks to a reduction in claims - deregulation in New Jersey resulted in policies that are more suited to the needs of individuals. You can buy policies that don't impose a surcharge for a single accident in a five-year period, for instance, or one designed for people who rarely drive.

That kind of reform would be good for Massachusetts drivers. Our concerns with Burnes' proposal are that it may not go far enough to produce significant savings and that pressure from urban legislators will tilt the benefits away from those who live outside the city.